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The rise of sustainable investing

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The rise of sustainable investing

Across the globe, sustainable investing is witnessing accelerated growth, with institutional and retail investors incorporating positive social, community and environmental criteria into investment decision making.

One of the triggers spurring growth is the global pandemic, which has shone the spotlight on corporate behaviour, shifting the community, the environment and social concerns to the centre of governance, and driving investment based on values.

Taking an ESG approach for sustainable investing

In recent times, while making investment decisions, Environmental, Social & Governance (ESG) factors are increasingly being taken into consideration.

Deloitte's ‘Advancing Environmental, Social, and Governance Investing—A holistic Approach for Investment Management Firms' states that globally 75% of retail and institutional investors in 2019 applied ESG principles to at least 25% of their portfolio; an increase from 48% in 2017. According to EPFR, which tracks the flow of global funds, socially-responsible funds with ESG mandates hit record inflows of $168.74 billion in 2020, over $63.34 billion in 2019.

In Asia, according to MSCI Investor Insights 2021, a significant 79% of investors increased ESG investments, responding to the Covid-19 crisis. By the end of 2021, at least 57% of investors will incorporate ESG-led decision making in their investment analysis. In India, from the period of January till March 2020, sustainable funds to the tune of $500 million flowed into India, according to financial services company Morningstar.

Tapping into this investor opportunity, the National Stock Exchange in India introduced ESG-based, forward-looking thematic investing indices, giving an alternate framework for investors to consider. The NIFTY100 ESG index and the NIFTY100 Enhanced ESG Index comprise companies that have high ESG scores. These indices have outperformed the NIFTY50 from 2012-2018, showing a clear trend of ESG-focused enterprises mitigating high-risk through governance. It has also recently introduced a NIFTY100 ESG Sector Leaders.

Several leading asset management companies in India have launched ESG Mutual Funds, offering retail investors options to channel funds into responsible companies. The Aditya Birla Sun Life ESG Fund, Axis ESG Fund, ICICI Prudential ESG Fund, Kotak ESG Opportunities Fund, and Mirae Asset ESG Sector Leaders ETF are ESG-based funds that cater to the socially responsible investment demand.

The India Outlook

In India, the shift towards sustainable investing has necessitated formulating an integrated reporting framework to create long-term value and build trust. Technology and data driven agencies such as Futurescape help companies bring together sustainability with their brand experience, by reimagining the customer experience and thus creating value for the business. As per SEBI, India's leading 1,000 listed companies were required to file a Business Responsibility Report (BRR) with the stock exchange, integrated with their annual reports. This has made way for the Business Responsibility and Sustainability Reporting (BRSR) in August 2020. The BRSR will need to be adopted mandatorily by companies from the financial year 2020-2021, bringing in greater transparency via disclosures vis-à-vis ESG information.

Going a step ahead, Grant Thornton Bharat's report on ‘Integrated Reporting in India' believes that 56% of respondents believe that integrated reporting improves transparency and governance. Nearly 66% of respondents are convinced that integrated reporting and clear disclosures about financial, manufactured, intellectual, social, human and natural capital will increase stakeholder value. Clear guidelines and increased awareness of them will lead to more companies adopting integrated reporting in the country.

Adapting to changing times

As stakeholders turn to companies to make sustainable choices, decoupling growth with unsustainable operations, several companies are taking a leadership position. AB InBev, the world's leading brewer, has incorporated ESG value drivers in their business model. It's striving towards fulfilling its 2025 Sustainability Goals across key pillars of Smart Agriculture, Water Stewardship, Climate Action and Circular Packaging, in support of the United Nation's sustainable Development Goals.

AB InBev recently launched its inaugural edition of the Environmental, Social and Governance (ESG) Report. The report highlights the work accomplished in 2020 and company's goals, approach and progress made thus far, and the lessons it has learned on this journey. It showcases their commitment to environmental stewardship through its four pillars i.e. Smart Agriculture, Water Stewardship, Climate Action & Circular Packaging. Their commitment to build a better world involves initiatives such as building environmental resilience, lowering harmful alcohol consumption, giving an impetus to growth and promoting livelihoods that are sustainable. By bringing in responsibility, sustainability, transparency and purpose in how it conducts business, AB InBev building a company to last for the next 100+ years and beyond.

Bibliography

https://www2.deloitte.com/content/dam/insights/us/articles/5073_Advancing-ESG-investing/DI_Advancing-ESG-investing_UK.pdf

https://www.msci.com/documents/1296102/22910163/MSCI-Investment-Insights-2021-Report.pdf

https://www.cnbc.com/2021/02/11/sustainable-investment-funds-more-than-doubled-in-2020-.html

https://www.livemint.com/market/mark-to-market/covid-was-a-booster-shot-for-esg-theme-as-funds-saw-high-inflows-11609868273888.html

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https://www.grantthornton.in/globalassets/1.-member-firms/india/assets/pdfs/integrated-reporting-in-india-december-2020.pdf

https://www.financialexpress.com/market/cafeinvest/sustainable-investing-why-investing-in-ethically-sound-companies-is-a-trend-that-is-here-to-stay/2105107/

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https://www.ab-inbev.com/content/dam/abinbev/news-media/press-releases/2021/02/AB%20InBev%20ESG%20Report%202020%20HD%20Final.pdf